Roche Brothers is considering a capacity expansion of its supermarket. The landowner will build the addition to suit in return for $175,000 upon completion and a five-year lease. The increase in rent for the addition is $8,000 per month. The annual sales projected through year 5 follow. The current effective capacity is equivalent to 500,000 customers per year. Assume a 2 percent pretax profit on sales. Data Table LOADING... Year 1 2 3 4 5 Customers 560,000 600,000 675,000 700,000 725,000 Average Sales per Customer $51.00 $54.00 $58.00 $60.00 $64.00 a. If Roche expands its capacity to serve 700,000 customers per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion? The projected annual incremental pretax cash flows attributable to this expansion in year 0 are $-------. (Enter your response as an integer.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 9MC

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Roche Brothers is considering a capacity expansion of its supermarket. The landowner will build the addition to suit in return for

$175,000

upon completion and a five-year lease. The increase in rent for the addition is

$8,000

per month. The annual sales projected through year 5 follow. The current effective capacity is equivalent to 500,000 customers per year. Assume a

percent pretax profit on sales.

Data Table

Year	1	2	3	4	5
Customers	560,000	600,000	675,000	700,000	725,000
Average Sales per Customer	$51.00	$54.00	$58.00	$60.00	$64.00

a. If Roche expands its capacity to serve 700,000 customers per year now (end of year 0), what are the projected annual incremental pretax cash flows attributable to this expansion?

The projected annual incremental pretax cash flows attributable to this expansion in year 0 are

$-------.

(Enter

your response as an

integer.)

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